Crude Oil Futures Dive On Inventory Surplus And Stronger Dollar

Crude futures have experienced a sharp selloff over the past 24 hours, collapsing after sinking beneath our previous 1^st tier uptrend line.  Yesterday’s selloff was accompanied by large sell-side activity, and today is shaping up to be a high volume session as well.  Crude futures snapped out of their $68-$72/bbl trading band after weekly inventories registered a spike in supply.  The inventory surplus follows data from China revealing a decline in crude imports for the second straight month.  Hence, it seems China has satiated its thirst for crude for the time being.  In addition to the pulls in supply and demand, we are witnessing a broad-based appreciation of the Dollar.  We notice significant declines in the Cable as well as a slight downturn in the EUR/USD and stabilization in the USD/JPY.  These catalysts combined with negatively mixed global economic data are driving crude lower towards the psychological $65/bbl level.

The ability for crude to base will likely depend on tomorrow’s wave of U.S. economic data, most notably Durable Goods Orders and the Revised UofM Consumer Sentiment numbers.  Each release is telling as far as the health of consumption in the U.S is concerned.  Any surprise to the downside in tomorrow’s data could drop the S&P futures beneath our important 1^st tier uptrend line and knock crude lower.  On the other hand, positive economic data would be conductive in helping crude stabilize.

Meanwhile, investors should eye the behavior of the Dollar.  Further technical setbacks in the major Dollar crosses would place added downward pressure on crude.

Technically speaking, crude’s drop below our previous 1^st tier uptrend line and July 30^th lows is an important development in our eyes.  Crude has likely sacrificed the highly psychological $70/bbl in the process, and investors will now look to $65/bbl as the next psychological play.  Crude’s deterioration technically is disconcerting, and could yield a new near-term downtrend if the S&P futures should follow suit.  As for the topside, crude now faces multiple uptrend lines, and $70/bbl is serving as a technical barrier now.  We are initiating a negative outlook on crude unless the S&P futures should turn and the Dollar depreciate considerably in the wake of tomorrow’s data.

Price: $66.25/bbl

Resistances: $66.84/bbl, $67.13/bbl, $67.52/bbl, $68.08/bbl, $68.74/bbl

Supports: $66.11/bbl, $65.76/bbl, $65.25/bbl, $64.90/bbl, $64.65/bbl

Psychological: $65/bbl, $70//bbl

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